How to avoid estate planning mistakes which could be costly to you and your heirs
Estate planning mistakes are easy to make, due to the complex patchwork of state and federal laws concerning inheritance, probate, real estate, and taxation. Everybody has an estate when they die. Some estates are larger than others. An individual’s estate consists of personal property such as cash, investment accounts, vehicles, artwork, jewelry, and business interests. An estate also includes any real property like land, houses, condominiums, and commercial buildings.
To make sure that the assets of your estate are transferred to the people you want to receive it upon your death, it is necessary to make sure your estate planning documents are properly prepared and maintained in order. I frequently meet people who make estate planning mistakes. The good news is, as long as the property owner is alive and mentally capable of making his own decisions, these mistakes can be remedied. Here is a list of five common estate planning mistakes people make.
Estate planning mistake #1: doing nothing at all
Avoiding the preparation of an estate plan will not delay the inevitable. Everybody dies, and having a proper estate plan in place ahead of time can save your family a lot of legal difficulties and expenses. Estate planning documents specify who is supposed to get your assets when you die.
Many people believe a last will and testament fulfills this purpose. But by itself, a will is insufficient, because it does not prevent the time-consuming and costly probate process.
If you do not have a valid estate plan, state law will determine who receives your estate assets. If you live here in the Los Angeles area, the California Probate Code, enacted in 1931, specifies how your assets will be awarded to your surviving family members.
The California Probate Code divides your assets as follows:
|When you die:||Who inherits your assets:
|You are not married but you have children||Your children inherit everything
|You are married but have no children||Your spouse inherits everything
|Your parents are still alive and you have no children, spouse, or siblings||Your parents inherit everything
|You have siblings but no parents, children, or spouse||Your siblings inherit everything
|You are married and have children||Your spouse inherits all of your community property and splits your separate property with your children, depending on how many kids you have.
|You are married and have no children and your parents are still alive||Your spouse inherits all of your community property and splits your separate property with your parents
|You are married and have no children or living parents but have siblings||Your spouse inherits all of your community property and splits your separate property with your siblings
Even if this plan is completely consistent with your wishes, estate planning is necessary to avoid delays in getting access to the estate and unnecessary costs of probate.
The documents will also designate who is authorized to make medical and financial decisions for you if you are still alive, but too sick or otherwise incapable of making decisions on your own.
Estate planning mistake #2: thinking you have very few assets or assets of little value
Many people think that their estate is too small to even consider preparing an estate plan. This is an unfortunate estate planning mistake because if an individual has personal property worth more than $150,000 or owns real property valued at more than $50,000, probate will be required to award the assets to their surviving family members. I discuss this in greater detail in the article, Costs of Probate in California. But as a quick example, if someone’s assets totaled $250,000, the probate fees could be as high as $16,000 plus court costs.
A comprehensive estate plan can be prepared for a fraction of that amount and save the surviving loved ones thousands of dollars and months of of hardship.
Estate planning mistake #3: adding another person to the title of your property
A somewhat simple solution which is often proposed to avoid the need for estate planning is adding another person to the title of your assets. By adding another person to your bank account, that person shares the ownership of that asset with you. When you pass away, that person becomes the sole owner of that account. Sounds great, right? Perhaps, but only if the person you add is trustworthy and will encounter no financial or legal troubles of their own in the future.
But what happens if that person suffers a car accident or gets behind on their bills? Any financial judgments against that person are collectable from any of their assets, including the house for which you just added their name to the title. Worse yet, what happens if the person you put on title is not honest or is tempted into making a quick buck by taking money from the bank account of which they are now the joint owner?
Your house and the money that you worked so hard for can be lost in a moment due to the misdeeds of another person that you made co-owner. Plus, taking a person off title is not as easy as adding them to it, especially if they won’t sign the appropriate documents consenting to the change. Many people who have made this common estate planning mistake have gone on to regret it, and have lost everything they’ve worked for as a result.
Instead, preparing an estate plan so your beneficiary gets your assets after you die is the best solution. That way, you own and completely control your assets while you are alive, and the misfortunes of others will not affect your ownership — unless you make the decision to utilize your resources to help them.
Click here for part 2: more estate planning mistakes and how to avoid them ►
Protecting your assets is the main reason to consider preparing your estate plan. Estate planning mistakes can be costly but are completely avoidable. Consult with experienced estate planning attorney Barbara Craig to ensure you don’t make any of these costly estate planning mistakes.